Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

Abstract: Recent empirical research by, for example, Audretsch and Fritsch (1999) and Armington and Acs, (2002) shows that regional determinants of new firm formation differs between industries. It has also been suggested that a large part of the regional variation of new firm formation can be explained by differences in industrial structure. This paper reinvestigates the regional determinants of entry and exit considering these findings. The empirical analysis is performed using data on Swedish firm entry and exit rates for 1997-2001. It is shown that on average about 0.5 to 2.7 percent of the regional variation in entry and exit rates remains to be explained, after controlling for differences in industrial structure, but that there is substantial regional variation. A majority of the firms in the 47 industries investigated are sensitive to unobserved regional characteristics, such as regional policy when deciding to enter or exit a particular region. Agglomeration and the size structure in the particular industry and region are factors that are found to influence entry and exit rates in almost all industries.

Keywords: Entry; exit; industry structure; regions

JEL-codes: L10; R12

44 pages, August 12, 2005

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